Pirelli RE and The Morgan Stanley Real Estate Funds (MSREF) have signed a binding agreement aiming at the realization of a joint venture for the acquisition and management of non-performing loans, which had already been announced in basics in the first half-year of 2004.

Thanks to this binding agreement, parties extend their alliance, which has been consolidating over the course of time in the field of acquisition, development and valorisation of portfolios of offices, to a new sector in which both institutions boast a meaningful expertise, on completion of Pirelli RE’s business model.

The merger will bring forth a new reality, controlled by MSFREF for 51% and Pirelli RE for 49%, which will be a national leader in a highly specialized and expanding sector. The agreement provides a put&call option, under which Pirelli RE can buy 51%, starting from the 1st of January 2007.

Moreover, Pirelli RE pledges to buy 15% of the NPLs portfolio owned by MSREF, for a gross book value of approximately 2.5 billion euro (to December 31st, 2003), at an amount of 33.5 million euro, after debts.

The agreement also provides an exclusive acquisition of new large-size portfolios, with Pirelli RE holding 25% and MSREF 75%. The agreement aims at strengthening the alliance between the two groups through the acquisition by MSREF of 857,750 shares of Pirelli RE, equal to 2.1% of the capital, at a price of 28.9 euro per share. MSREF has undertaken a 12-month lock-up engagement with Pirelli RE. Pirelli RE will buy 5% of Fonspa SpA (Credito Fondiario Industriale), a credit institute owned by MSREF, for a maximum investment of 1.8 million euro, with a call option on a further 10% to be exercised within the end of 2007.

The closing of the operation is scheduled for the end of November 2004, subject to the approval of the Authorities for free competition and market, of the Central Bank of Italy and of the Trustees of existing securitizations.